Investing Is Easy—Until It’s Not

Technology has broadened the appeal of do-it-yourself investing, with analyst reports and market updates at your fingertips. And now, robo-advisors are available that can help you choose a diversified portfolio at a relatively low cost. While these “no advice” and “advice-lite” models of investing have gained market share, there are several areas where retaining a real-life, human advisor is well worth the extra cost.

Helping you through volatile periods

When stock markets go through long periods of relative calm—for example, one or two years of below-average volatility—financial commentators sometimes say that the markets are “complacent.” In these times when most portfolios move up, the well-known principles of investing—such as diversifying across a mix of stocks, bonds and cash equivalents (or mutual funds that hold these securities)—may seem unnecessary.

These periods eventually give way to volatility, when stocks sell off broadly and investors see their gains reduced. These are times when advisors can really prove their value. Advisors can’t foretell future performance, but they are trained to get to know their clients and to construct diversified portfolios that balance clients’ need for investment gains with their tolerance for risk. Research shows that investors who use advisors achieve higher levels of wealth compared to those without advisors.

According to the Investment Funds Institute of Canada, investor sentiment plays a big role in the amount of money that flows into or out of equity mutual funds. And this sentiment-driven pattern tends to be counterproductive.

Specifically, when markets are peaking, investors typically “buy high” by putting more money into equity mutual funds. After markets correct, investors typically wait for long periods before committing new money to equity funds. In fact, there were net flows out of mutual funds from mid-2008 to 2012, even as markets were rising. Anything that can reduce this “buy high, sell low” movement, such as asset class diversification, is a big help.

Helping you navigate the various accounts

As you grow your investment assets, you become more familiar with the various types of accounts: investment accounts, registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), registered education savings plans (RESPs) and tax-free savings accounts (TFSAs). As a do-it-yourself investor, you will be responsible for keeping track of deadlines, taxes, withdrawals and contribution room. These are not necessarily difficult things to learn about, but they require extra organization. Certainly, this is an area where an advisor can help you.

Considering tax effectiveness

Different assets are taxed at different rates, lower-income family members often have lower tax rates, and certain structures (such as trusts) can be useful in estate planning. These nuanced areas of investing and financial planning become more valuable as your assets grow.

And tax legislation keeps changing, so it’s important to be aware of the impact of each choice, particularly if you’re an incorporated physician. A financial advisor can put you in touch with tax and estate specialists who can help you with the more complex strategies.

Your advisor can help you achieve your desired asset mix, while keeping an eye on tax effectiveness. For example, highly taxed assets—such as bonds—are better placed in deferred-tax accounts like RRSPs or tax-free accounts like TFSAs. Taxable accounts are better suited for assets that generate capital gains or Canadian dividends, which are taxed at lower rates than interest is. Of course, tax treatment is only one factor in selecting an investment.

Keeping families on the same page

Frequently, spouses will have different tolerances for investment risk. So, one may hold a more conservative investment portfolio than the other one does. An advisor can look at the securities within each portfolio and provide an approach that reduces overlap and delivers more effective diversification.

Focusing on quality, service and low cost

Through our MD Financial Suite, MD Financial Management offers investing services for a variety of preferences: online brokerage through MD Direct TradeTM; low-cost, simple online investing through MD ExO® Direct; and comprehensive investment and financial planning through the MD PlusTM account and MD Private Investment Counsel. We know the world is changing, and we’ve changed, too. We are available to help you choose the services that best suit your needs.

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